The recurring mistakes that trigger TDS notices, and a simple process to stay on the right side of the rules.
TDS (tax deducted at source) and TCS (tax collected at source) penalties are among the most avoidable costs in business compliance — and among the most frequently incurred. Most businesses that receive TDS notices are not evading tax; they are making process errors that a small amount of discipline would eliminate.
The four errors that cause most notices
- Deducting at the wrong rate — especially on payments to contractors (194C vs 194J), where the distinction between contract work and professional services is frequently misapplied
- Depositing on time but quoting the wrong section code in the challan, causing a mismatch in Form 26AS
- Filing the quarterly return (24Q/26Q) with incorrect PAN of the deductee — attracts ₹200/day late fee plus 20% higher deduction liability on that payment going forward
- Not deducting TDS on advance payments — TDS applies when an amount is credited or paid, whichever is earlier
Deposit and return deadlines
- TDS deducted in April–February: deposit by the 7th of the following month
- TDS deducted in March: deposit by 30 April
- Quarterly returns (Q1/Q2/Q3): 31 July / 31 October / 31 January
- Q4 return: 31 May of the following year
"The interest on late TDS deposit is 1.5% per month — that's 18% annualised. It's one of the most expensive short-term borrowings a business can accidentally take on."
A simple process to stay clean
Review every vendor payment above ₹30,000 (contracts) or ₹50,000 (rent) before processing. Maintain a single TDS register updated weekly. Deposit by the 5th rather than the 7th to leave buffer for bank processing delays. Run a 26AS reconciliation before every quarterly return. None of this is complex — it is primarily a matter of making TDS review a fixed step in your payment approval process rather than an afterthought.
